Required:
For each of these scenarios described below, answer the following question:
1. Does the situation result in taxable temporary difference or a deductible temporary difference?
2. Does the temporary difference produce a deferred tax asset or deferred tax liability?
3. From what specific balance sheet asset or liability account is the temporary difference calculated?
4. How is the tax basis of the balance sheet asset or liability account calculated and why does it differ from the book basis of the asset or liability account?
Scenario 1:
X was incorporated and began business this year, for tax purposes, it capitalized organization costs which are amortizable over 15 years. For book purposes, the organization costs were expensed.
Scenario 2:
On 31 December, X received an advance payment of two years of rental income from a tenant in one of its commercial buildings. For book purposes, the payment was recorded as unearned revenue and will be reported as income when earned over the next two years.
ScholarMatic: Explanation & Answer
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